Corker Expresses Opposition to TAG Extension

Banks hoping Congress will extend the FDIC’s Transaction Guarantee Program are facing opposition from Sen. Bob Corker (R-Tenn.), who occupies a seat on the Senate Banking Committee.

Corker penned an Aug. 2 letter to FDIC Chairman Martin Gruenberg that was critical of extending the temporary program that provides unlimited federal deposit insurance coverage for transaction accounts.

The NCUA provides a similar program for credit unions; both are set to expire on Dec. 31.

Corker expressed concerned over the potential “moral hazard” that could come from extending a program that provides unlimited insurance, and asked Gruenberg if the FDIC’s risk-based insurance premiums maintain adequate reserves for TAG.

The Tennessee senator also questioned bankers’ arguments that claim banks need the program to maintain deposits so they can continue to lend to customers and manage liquidity.

“Recent analysis indicates that bank loan-to-deposit ratios are very low by historic standards and that the industry has plenty of liquidity,” Corker wrote in the letter.

He followed up by asking Gruenberg to provide loan-to-deposit ratios and liquidity measures, and determine, in light of the numbers, if the TAG extension remains necessary.

Corker further questioned community bankers’ claims that TAG helps them compete against big banks.

“It appears (that) proportionally more of the TAG deposits may be held by the larger banks, and these deposits may account for a significant percentage of the growth in those banks,” Corker wrote.

During a July 26 Senate Banking Committee hearing, Corker asked for Treasury Secretary Timothy Geithner’s opinion on extending TAG. Geithner replied that the extension does not seem warranted.

An editorial Tuesday in the Wall Street Journal editorial said the Obama Administration may not support bank lobbyists’ arguments that TAG is necessary because the weak economy requires it.

“Team Obama may not wish to implicitly concede that its policies in both areas have failed,” the editorial board said.

However, Senate Banking Committee Chairman Tim Johnson (D-S.D.) and Sen. Sherrod Brown (D-Ohio), who chairs the Financial Institutions and Consumer Protection Subcommittee, wrote a July 27 letter to Office of Management and Budget Acting Director Jeffrey Zients, asking the OMB to “advocate for a two-year extension” of the TAG program.

There was no mention of credit unions in the letter.

The Conference of Bank Supervisors expressed its support for extending TAG in an Aug. 3 letter to Senate and House majority and minority leaders.

CSBS President/CEO John Ryan said in the letter that “the stability provided by the TAG program is still necessary” and efforts to address systemic risk “remain a work in progress.”

Ryan suggested Congress require the FDIC to develop a transition plan that would allow institutions to gradually withdraw from the program, which would avoid an abrupt end date and create liquidity concerns for some institutions.

CUNA President/CEO Bill Cheney told attendees at the trade association’s national conference in July that CUNA was attempting to put together a congressional package that would support extending the TAG program in exchange for support of efforts to increase the member business lending cap.

However, American Bankers Association Chief Lobbyist James Ballentine said the ABA would “adamantly oppose” such a deal because an extension would likely also include the NCUA assets program.